We recently upgraded our recommendation on programmable logic
. ( XLNX) to Neutral from Underperform.
Xilinx is uniquely positioned to capitalize on incremental
growth opportunities presented by its leadership in 28nm products
and innovative platform-based architectures. The ramp up in
28-nanometer and 40-nanometer products will create a host of new
opportunities, and replacement of ASICs will take place in a more
aggressive way. 28-nanometer sales showed solid growth in the
second quarter of fiscal 2013.
The company reported better-than-expected results for the
second quarter of fiscal 2013. Xilinx reported earnings per share
of 46 cents in the second quarter of fiscal 2013, easily beating
the Zacks Consensus Estimate of 41 cents. However, the quarterly
earnings failed to surpass the year-ago earnings as well as the
prior quarter earnings of 47 cents a share. Net income declined
5% sequentially and 2% year over year to $123.4
However, earnings estimates for Xilinx have declined
significantly owing to the soft guidance provided by the company.
Xilinx stated that the backlog entering into the December quarter
was down on a sequential basis.
In addition, management estimates that continued macroeconomic
uncertainty may result in unpredictable customer ordering
patterns. Sales of base and mainstream products are likely to
Nevertheless, Xilinx, which competes with
), expects continued growth from new products. However,
Xilinx expects sales to be down 1% to 5% sequentially in the
third quarter of fiscal 2013 and sales from all geographies are
projected to decrease.
Most analysts covering the stock have reduced their estimates
following the results leading to a fall in estimates for fiscal
2013 and fiscal 2014.
Owing to the uncertain business environment, Xilinx is taking
steps to reduce headcount and lower discretionary spending. We
also expect margins to improve as the company starts executing
better with TSMC as its foundry partner. The shift to TSMC should
lower operating expenses as well.
We expect the communications market to be the growth driver in
the coming quarters, propelled by accelerating LTE deployments
across the world. The company has most recently won its first
major design win at Huawei. We expect Xilinx to win some of its
lost market share from Altera .
Our Neutral recommendation is supported by a Zacks #3 Rank,
which translates into a short-term rating of Hold.
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